Text: HF02078 Text: HF02080 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
PAG LIN
1 1 Section 1. Section 422.7, Code Supplement 2001, is amended
1 2 by adding the following new subsection:
1 3 NEW SUBSECTION. 38. a. For purposes of this subsection:
1 4 (1) "Capital stock" means voting and nonvoting common and
1 5 preferred stock and stock options issued pursuant to an
1 6 incentive stock option plan. "Capital stock" does not include
1 7 stock rights, stock warrants, or debt securities, and does not
1 8 include stock or stock options issued by a corporation which
1 9 does not offer incentive stock options to all full-time
1 10 employees. A corporation does not offer incentive stock
1 11 options to all full-time employees unless each of those
1 12 employees is issued at least a number of incentive stock
1 13 options equal to twenty percent of all issued outstanding
1 14 incentive stock options divided by the number of full-time
1 15 employees. A corporation does not offer incentive stock
1 16 options to all full-time employees unless any restrictions on
1 17 the exercise or sale of the stock options apply to all these
1 18 employees under the same terms.
1 19 (2) "Corporation" means any of the following:
1 20 (a) A corporation which at the time of the first sale or
1 21 exchange for which an election is made under paragraph "c" has
1 22 been in existence and actively doing business for at least
1 23 three years and is not a personal holding company as defined
1 24 in section 542(a) of the Internal Revenue Code.
1 25 (b) A corporation which is a member of an affiliated
1 26 group, as defined in section 1504(a) of the Internal Revenue
1 27 Code, which group includes a corporation described in
1 28 subparagraph subdivision (a) and which group has been in
1 29 existence and actively doing business for at least three
1 30 years.
1 31 (c) A predecessor or successor corporation of a
1 32 corporation described in subparagraph subdivision (a). A
1 33 corporation is a predecessor or successor corporation if the
1 34 corporation was a party to a reorganization that was entirely
1 35 or substantially income tax free and that occurred during or
2 1 after the employment of the taxpayer making an election under
2 2 paragraph "c".
2 3 (3) "Incentive stock option" means the same as defined in
2 4 section 422(b) of the Internal Revenue Code.
2 5 b. For purposes of this subsection, the corporation
2 6 issuing capital stock for which an election under paragraph
2 7 "c" is made must, at the time of the first sale or exchange
2 8 for which the election is made, have at least five
2 9 shareholders and at least two shareholders or groups of
2 10 shareholders who are not related to each other and each of
2 11 which owns at least five percent of the capital stock.
2 12 For purposes of this paragraph "b", two persons shall be
2 13 considered to be related when, under section 318 of the
2 14 Internal Revenue Code, one is a person who owns, directly or
2 15 indirectly, capital stock that if directly owned would be
2 16 attributed to the other person or is the spouse, child,
2 17 parent, grandparent, brother, sister, aunt, uncle, cousin,
2 18 niece, or nephew of the other person who owns capital stock
2 19 either directly or indirectly.
2 20 c. (1) In the manner provided in paragraph "d", an
2 21 individual may elect to subtract one-half of the capital gain
2 22 from the sale or exchange of capital stock of a corporation
2 23 acquired by the individual on account of employment with that
2 24 corporation. However, for tax years beginning in the 2002
2 25 calendar year, the amount that may be subtracted is one-fourth
2 26 of such capital gain.
2 27 (2) (a) Each individual shall be entitled to two
2 28 elections under subparagraph (1) during the individual's
2 29 lifetime for the capital stock of two different corporations.
2 30 (b) The election applies only to the tax year for which
2 31 the election was made and applies to all sales and exchanges
2 32 in the tax year for which the election was made of capital
2 33 stock in the same corporation which was acquired as provided
2 34 in subparagraph (1).
2 35 (c) After the individual makes an election for the tax
3 1 year, the election shall also apply to the sale or exchange in
3 2 that tax year of capital stock of the corporation which had
3 3 been transferred by inter vivos gift from the individual to
3 4 the individual's spouse if the capital stock was acquired as
3 5 provided in subparagraph (1). This provision applies in the
3 6 case of the spouse, only if the spouse was married to such
3 7 individual on the date of sale or exchange or the date of
3 8 death of the individual and if the spouse and individual file
3 9 a joint Iowa income tax return on which the election is made.
3 10 If the individual dies without making an election, the
3 11 surviving spouse may make the election for capital stock that
3 12 would have qualified under this subparagraph subdivision.
3 13 However, if there is no surviving spouse, the oldest surviving
3 14 issue who owns capital stock that would have qualified under
3 15 this subparagraph subdivision may make the election.
3 16 d. An election under paragraph "c" shall be made by
3 17 including a written statement with the taxpayer's Iowa income
3 18 tax return for the tax year for which the election is made.
3 19 The written statement shall identify the corporation that
3 20 issued the capital stock, the grounds for the election under
3 21 this subsection, and that the taxpayer elects to have this
3 22 subsection apply to sales and exchanges in that tax year.
3 23 (1) In order for the taxpayer to claim the benefits of the
3 24 partial deduction of the capital gain under this subsection,
3 25 the taxpayer must completely fill out the tax return,
3 26 determine the taxpayer's income tax liability without the
3 27 benefit of this subsection, and pay the amount of tax owed.
3 28 The taxpayer shall recompute the taxpayer's income tax
3 29 liability, by applying the provisions of this subsection on a
3 30 special return. This special return shall be filed under
3 31 rules of the director and constitutes a claim for refund of
3 32 the difference between the amount of tax the taxpayer paid as
3 33 determined without the application of the provisions of this
3 34 subsection and the amount of tax determined with the
3 35 application of the provisions of this subsection.
4 1 (2) This subsection shall not affect the amount of the
4 2 taxpayer's checkoff to the Iowa election campaign fund under
4 3 section 56.18, the checkoff for the state fish and game
4 4 protection fund in section 456A.16, the credits from tax
4 5 provided in sections 422.10, 422.11A, and 422.12 and the
4 6 allocation of these credits between spouses if the taxpayers
4 7 filed separate returns or separately on combined returns.
4 8 (3) For any tax year, the aggregate amount of refund
4 9 claims that shall be paid pursuant to this subsection shall
4 10 not exceed three million dollars. If, for a tax year, the
4 11 aggregate amount of refund claims filed pursuant to this
4 12 subsection exceeds three million dollars, each claim for
4 13 refund shall be paid on a pro rata basis so that the aggregate
4 14 amount of refund claims paid does not exceed three million
4 15 dollars. In the case where refund claims are not paid in
4 16 full, the amount of the refund to which the taxpayer is
4 17 entitled under this subsection is the pro rata amount that was
4 18 paid and the taxpayer is not entitled to a refund of the
4 19 unpaid portion and is not entitled to carry that amount
4 20 forward or backward to another tax year. Taxpayers shall not
4 21 use refunds as estimated payments for the succeeding tax year.
4 22 Taxpayers whose tax years begin on January 1 must file their
4 23 refund claims by October 31 of the calendar year following the
4 24 end of their tax years to be eligible for refunds. Taxpayers
4 25 whose tax years begin on a date other than January 1 must file
4 26 their refund claims by the end of the tenth month following
4 27 the end of their tax years to be eligible. The department
4 28 shall determine on February 1 of the second succeeding
4 29 calendar year if the total amount of claims for refund exceeds
4 30 three million dollars for the tax year. Notwithstanding any
4 31 other provision, interest shall not be due on any refund
4 32 claims that are paid by the last day of February of the second
4 33 succeeding calendar year. If the claim is not payable on
4 34 February 1 of the second succeeding calendar year, because the
4 35 taxpayer is a fiscal year filer, the claim shall be considered
5 1 a claim for the following tax year.
5 2 e. The deduction under this subsection is in lieu of any
5 3 deduction allowable under section 1202 of the Internal Revenue
5 4 Code for the capital gain from the sale or exchange of the
5 5 same capital stock.
5 6 Sec. 2. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE.
5 7 This Act, being deemed of immediate importance, takes effect
5 8 upon enactment and applies retroactively to January 1, 2002,
5 9 for tax years beginning on or after that date.
5 10 EXPLANATION
5 11 This bill provides a deduction under the individual income
5 12 tax of 50 percent (25 percent for the 2002 tax year) of the
5 13 capital gain from the sale or exchange of capital stock of a
5 14 corporation acquired by the taxpayer on account of employment
5 15 with the corporation. The taxpayer must make an election to
5 16 take the deduction and the election only applies for that tax
5 17 year. The election is made by a written statement filed with
5 18 the department. In addition, the benefits of the deduction
5 19 are realized by means of a refund claim. This involves the
5 20 taxpayer filing a return with tax liability determined without
5 21 deduction for the capital gain and a special return with tax
5 22 liability determined with the deduction for the capital gain.
5 23 The reduction in tax liability will be treated as a claim for
5 24 refund of the amount of the reduction. However, not more than
5 25 $3 million in tax refunds may be allowed for any tax year. If
5 26 more refunds are claimed, then each refund claim is payable at
5 27 a pro rata amount, which is the final amount of the taxpayer's
5 28 actual refund. A taxpayer may make two elections for two
5 29 different corporations during the taxpayer's lifetime. The
5 30 election would also apply to stock sold during that tax year
5 31 which was previously granted to a spouse of the taxpayer but
5 32 only if they file a joint Iowa income tax return. The
5 33 election would not apply to capital gains from stock or stock
5 34 options unless the corporation issuing the options offered
5 35 them to all full-time employees.
6 1 The deduction is in lieu of the deduction that may be
6 2 allowable under the Internal Revenue Code for sale or exchange
6 3 of stock in a small business held for five years.
6 4 The bill takes effect upon enactment and applies
6 5 retroactively to January 1, 2002, for tax years beginning on
6 6 or after that date.
6 7 LSB 5319HV 79
6 8 mg/cls/14
Text: HF02078 Text: HF02080 Text: HF02000 - HF02099 Text: HF Index Bills and Amendments: General Index Bill History: General Index
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